Santa Cracks Whip on Elves
“I believe that tax increases, especially for the wealthiest, are appropriate,” declared Goldman Sachs CEO Lloyd Blankfein in The Wall Street Journal.
The nice thing about being a CEO at the nation’s premier investment bank and writing an Op-Ed for the nation’s premier business newspaper is that the paper’s editors are unlikely to press you to define your terms.
You could be forgiven for suspecting that Blankfein’s definition of “the wealthiest” might come uncomfortably close to your own pay grade.
No skin off Blankfein’s nose: He has considerable leeway structuring when and where his income originates. You, in all likelihood, do not.
Hold that thought…
A year ago at this time, we undertook a survey of our readership. We asked you what your biggest concerns were about America and your retirement. And we asked what essential information you need to achieve your retirement dreams.
Here’s a representative sample of the replies…
- “I am afraid,” said one, “that America will turn into another Greece or Egypt or any other country that finally got sick and tired of the corrupt politicians or government in general and begin to riot and start rebelling so much that it turns into almost another revolution right here at home”
- “Can a man of 61 years,” said another, “even think about retirement by the time he is 67? Will the simple necessities of life be affordable with U.S. dollars?”
- “America’s government has taken on a life of its own,” said a third. “The government now justifies its own existence and pillages the serfs to fund its ever growing appetite. My concern is how do you avoid the poorhouse in this situation?”
As part of our analysis, we ran all the responses through a word-cloud generator. This crude but revealing tool shows the words that came up most often…
“Clearly,” Addison said at the time, “you’re worried about the government… and about your retirement. And, no doubt, how the former is mucking up the latter.”
We did not conduct a follow-up survey this year… in part because we figured the results would be much the same.
That said, there’s a variation on the theme showing up lately in The 5’s inbox…
- “Taxing the rich some more sounds good,” says one, “until you look into the numbers and see how little good that will do in itself. Enough of this class warfare”
- “I believe the ‘tax the rich’ crowd can’t think further than a dachshund dodo,” says another. “It’s really simple: A) The rich create jobs, B) The less money they have, the fewer jobs they create”
- “I can only come to the conclusion,” says a third, “that this country is now filled with adult children who were never advised by their parents that Santa is a myth. They are convinced that Santa indeed delivers every day of the year. Only his address has changed. The North Pole is now Washington, D.C., and his elves are those of us stupid enough to work and create a future for our families.”
An extreme response to the election outcome?
Not if you’ve been paying attention. Seven days after the election, Mitt Romney’s top economic adviser Glenn Hubbard agitated in the Financial Times for “closing loopholes” in the tax code for “upper-income taxpayers.”
As “fiscal cliff” negotiations proceed apace, Republicans are “no longer talking about the Dec. 31 deadline for the tax rates as a Masada, a full-bore defense of the old rates,” reports Dave Weigel at Slate. “They’re talking about what they can get if they accede to the Democrats.”
And Dec. 31 might not be the end of the story. Exxon Mobil — which gave 93% of its political donations to Republicans the last two years — “is part of a growing coalition backing a carbon tax as an alternative to costly regulation,” according to Bloomberg.
“Even if higher tax rates take a while to arrive,” says our macro strategist Dan Amoss, “people and businesses are not waiting to adjust their financial plans.”
Startlingly, even The New York Times has figured out this is a problem. The Gray Lady did a story on Sunday. The people they profiled sound a lot like our readership…
- Kristina Collins, a Virginia chiropractor, says she and her husband will try to stay under the $250,000 income threshold: “If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation”
- John Moorin, the founder of a medical equipment company in Indiana, sold $650,000 in dividend-paying stocks like McDonald’s and Coca-Cola a few days ago. “I’m so scared that now all of a sudden I’m going to get taxed at such a rate with them that they won’t be worth anything”
- Dyke Messinger, owner of a construction equipment firm in North Carolina, says he has four openings, but will fill only three of them, lest his tax bill rise $100,000. “It’s enough money that you don’t want to make a misstep.”
“The rich will start hoarding more cash, expecting to pay higher tax bills in the future,” Dan says. “They’ll invest more in liquid Treasury bonds and gold; they’ll invest less in illiquid, privately owned job-creating businesses or in the stock market.”
“At the margin,” Dan goes on, “the wealthy business owners in Middle America will have to either borrow against their businesses to raise funds for higher taxes. Or the more likely path will be to put their business in ‘runoff’ mode — boosting free cash flow by halting capital investments and hiring.
“I can’t imagine why this concept is so hard to understand, but I guess if in the experience of a politician’s whole life, he’s never observed family or a friend running a small business, this debate is just an abstraction and there are piles of idle money sitting in bank accounts waiting to be grabbed.”
Nor is the ignorance confined to Washington. The wealth of many “wealthy” people is tied up in the ownership of privately held companies — “things not so easily liquidated to pay higher taxes,” Dan points out. “This phenomenon is not familiar to many guilty rich people in New York, whose net worth is in liquid financial assets that can be sold piecemeal to pay taxes.”
Like the aforementioned Mr. Blankfein…
The preceding article was excerpted from Agora Finacial’s 5 Min. Forecast. To read the entire episode, please feel free to do so here.